GE ordered to defend lawsuit tied to 2008 crisis

By IBT Staff Reporter On 01/12/12 AT 9:56 PM

A federal judge refused on Thursday to throw out a lawsuit accusing General Electric Co and its chief executive of misleading investors about the conglomerate's financial health and exposure to risky debt during the 2008 financial crisis.

The decision by District Judge Richard Holwell in Manhattan keeps alive litigation seeking to hold the company responsible for investor losses during a six-month period when its stock price fell to about $10 from about $26, causing its market value to tumble by more than $150 billion.

Investors claimed that GE withheld information regarding its health and the health of its GE Capital finance arm, including exposures to subprime and other low-quality loans. They also said GE misleadingly touted itself as being safer than rivals, despite the effects of the financial crisis.

Holwell also let stand some claims accusing bank underwriters of omitting statements from offering documents for a $12.2 billion GE stock offering in October 2008. He dismissed several other claims, and did not rule on the case's merits.

A GE spokesman and lawyers for the investors did not immediately respond to requests for comment. Antonio Yanez, a lawyer for the banks, declined to comment.

Holwell said investors led by the State Universities Retirement System of Illinois adequately alleged that GE made material misrepresentations during the crisis about its access to commercial paper and ability to maintain its dividend.

He also let the investors pursue claims alleging that company officers, including Chief Executive Jeffrey Immelt and Chief Financial Officer Keith Sherin, misled them and had sufficient intent, known as scienter, to mislead.

CATEGORICAL STATEMENTS

Immelt's categorical statements that investors could 'count on' a dividend and that GE was having 'no difficulties' issuing commercial paper are not the sort of cautious statements one would expect of a CEO attempting to come to grips with the effects of the economic crisis on his company, Holwell wrote in a 53-page decision.

A CEO is allowed to convince the public to invest in his company, but not at the expense of providing it with accurate information about the company's financial health, Holwell continued. Taking the factual allegations in the (complaint) as true, the inference that Immelt acted with scienter is at least as compelling as the inference that he did not.